The 'equivalent photographs' (abbreviated by some as 'equivalence') argument works both ways.

What this boils down to in practical terms is that if you shoot at medium distances at medium to wide angle and want a shallow depth of field (e.g. a typical 'head and shoulders' portrait at 85 mm EFL) then a 135 format system will give you an advantage. If you want to shoot subjects at longer distances using narrower angle and do not want a very blurred image due to a very narrow DOF (e.g. people 100 ft or more away at 300 mm EFL) then a smaller format system will give you an advantage.

Actually, you can shoot the longer distances just the same with larger formats. The advantage of smaller formats over larger formats is that they are usually (but not always) considerably smaller, lighter, and less expensive for more narrow apertures.

For example, consider a 4/3 DSLR with a 70-300 / 4-5.6. This is equivalent to a FF DSLR with a 140-600 / 8-11. No such lens exists, and, even if it did, it would still be larger and more expensive than the 70-300 / 4-5.6 for a 4/3 DSLR.

Deciding whether you need to move 'up' or 'down' in format (e.g. between 135 and FourThirds) is easy enough to do. Review your shots: if you find that you have a lot of shots at wide-open aperture where you would prefer a shallower DOF then you may benefit by moving to a larger format; if you find that you have a lot of shots where you have a small aperture (and high ISO and / or low shutter speed) in order to get a sufficiently deep DOF then you may benefit from moving to a smaller format.

Indeed. If you find that you are usually stopping down on the larger format and using higher ISOs in the process, then a smaller format is more than likely the better choice, by far.

If it appears that you may benefit from changing format, then start looking at the costs and trade-offs involved.

Exactly. Equivalence is merely a vehicle to aid in making that decision.

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